Politically Exposed Persons Due Diligence in Brazil: A Risk-Based Approach
In recent years, Brazil has taken significant steps to combat money laundering and terrorist financing by adopting a risk-based approach towards anti-money laundering (AML) and combating the financing of terrorism (CFT). This approach is mandated by the country’s regulatory bodies, including the Financial Activities Control Council (COAF) and the Central Bank of Brazil.
Regulatory Bodies
The COAF is responsible for receiving, analyzing, and disseminating information related to suspicious financial transactions and activities. The Central Bank of Brazil regulates and supervises financial institutions, setting AML compliance standards and conducting inspections to ensure compliance.
AML Legislative Framework
Brazil’s AML legislative framework has been shaped by the Financial Action Task Force (FATF) guidelines. Law 9.613/98 and Law 12,683/12 provide clear definitions of money laundering activities and establish mechanisms for reporting suspicious transactions. Non-compliance with AML/CFT regulations can result in significant penalties and legal consequences.
Politically Exposed Persons
Special attention is given to politically exposed persons (PEPs), who are subject to enhanced due diligence measures when dealing with them. This includes conducting Know Your Customer (KYC) checks and ongoing monitoring of customer transactions.
Risk-Based Approach
The risk-based approach allows institutions to proportionally allocate controls based on the risk level of a given operation or customer. This approach provides flexibility, allowing financial entities to direct resources more efficiently and implement preventive measures in line with risk levels.
New Circular
Circular No 3,978/2020 emphasizes a risk-based approach over a detailed AML procedure. Financial institutions are empowered to assess their own operations and clients and categorize their risks. Institutions are mandated to constantly re-evaluate their know-your-customer (KYC) processes, which now also require more comprehensive data during customer onboarding.
AML in the Brazilian Financial System
The Brazilian Financial Intelligence Unit (UIF), also known as COAF, plays a critical role in the fight against money laundering, terrorist financing, and other financial crimes. COAF has the authority to issue recommendations to reporting entities based on its findings and impose administrative sanctions on non-compliant entities.
Recommendations for Compliance
To ensure compliance with AML/CFT regulations, financial institutions must:
- Conduct customer due diligence (CDD) measures to identify and verify the identities of customers
- Report suspicious transactions to COAF
- Maintain records of customer identification
Conclusion
In conclusion, Brazil’s risk-based approach towards AML/CFT has strengthened the country’s efforts to combat money laundering and terrorist financing. Financial institutions must continue to adhere to these regulations to ensure the integrity of the Brazilian financial system.